When Apple sued HTC, and targeted Android specifically (news which came out of the blue), many people, including myself, were convinced this was Apple letting the world know they were afraid of Android's rising popularity. This notion was laughed away by many an Apple fan, but it turns out that this is most likely far closer to reality than many dare to admit: in the first quarter of 2010, Android conquered the number two market share spot from the iPhone in the US - and by a wide margin too. Update: Added a graph which better shows the trend.

I'll just quote the relevant aspect of the article, which you clearly did not read:

Buyers can get capable Android phones on the cheap, and get a free one to boot (people prefer cheap), and they can choose from a multitude of models and carriers (people prefer choice). Given no encumbrances, a market will always strive for openness and choice - both on the consumer end, as well as the supplier end.

Your points are addressed in the article, and clearly too: people prefer cheap and choice, and the iPhone cannot deliver either. It doesn't deliver choice, since it's tied to AT&T, and there's only two models; it doesn't deliver cheap either (Android does: you can get cheap Android phones, or partake in a two-for-one scheme).

The two-for-one thing still means instead of just one, two Android phones make it onto the market - maybe for your partner, your children, a friend, whatever. You seem to think that the free phone somehow vanishes - which is nonsense.

As for the new iPhone coming out - the Android world isn't sitting still, and hasn't sat still either. The iPhone is currently playing catch-up to the top-notch Android phones (hardware-wise), so don't expect miracles there, and of course, new Android phones are coming out all the time. Apple simply cannot compete with the dozens of Android phone makers all at once.

While you want to discount things like the two-for-one scheme lack of carrier choice, it are exactly these things that are vital to Android's success!